Summary
First reason: undercapitalization
Second reason: wrong or no capital management
Third reason: greed and unrealistic expectations
Fourth reason: poor trade selection
Conclusions
First reason: undercapitalization
It’s necessary to have sufficient trading capital to trade the markets efficiently.
How much capital? It depends on the financial instruments that you usually trade.
I can give you these suggestions (minimum capital), based on my personal experience:
3000 $/€/£ if you trade Options (only on Stocks);5000 $/€/£ if you trade Forex;10000 $/€/£ if you trade Stocks;15000 $/€/£ if you trade Commodities (CFDs or Options);20000 $/€/£ if you trade intraday Futures (starting from micro and mini Futures);30000 $/€/£ if you trade multi-day Futures;50000 $/€/£ if you trade Commodities (Futures);
Second reason: wrong or no capital management
The management of your trading capital is the key to staying a long time on markets.
Professional (bank) traders are essentially professional risk managers. For this reason, they usually win on markets. If 95 % of retail traders lose their money, 95% of professional traders make money.
I have been operating in the markets for more than ten years because I am always very cautious and invest only small portions of my total capital.
Example: this is the percentual of the margin used on some of my accounts (I never go over 5%).
Screenshots by Author.
Third reason: greed and unrealistic expectations
You cannot have a profit from every trade you make!
And you cannot use all the margin that you have on your account to trade, because you became immediately undercapitalized.
As you can see above, I risk a very small capital so I have small returns, but I prefer this to risk a very big capital and have a very big (or total) loss!
Remember:
- small risk = small return;
- big risk = very big loss.
Defense is my best offense (in trading and in sports).
Fourth reason: poor trade selection
Usually, novice traders make a lot of trades, based on technical indicators only, with disastrous results.
Conversely, professional traders make few trades with a high probability of success, based on consistent statistics and backtests.
Novice traders have one or two trading systems, while professional traders have a portfolio with tens or hundreds of trading systems, an arsenal of scanners, etc., to choose only better opportunities.
Conclusions
The conclusions of this post are extremely simple. If you want to survive (and make money, too) on markets, you have only one way: to become a professional trader!
Written by F. GRAMOLA (*).
(*) Member of S.I.A.T., the Italian Society of Technical Analysis (member society of I.F.T.A. – International Federation of Technical Analysts).
Warning
We merely cite our personal opinions for educational purposes only.
Investing and trading are risky. Don't invest or trade money that you cannot afford to lose.
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Initial Photo by Kenny Eliason on Unsplash.
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